Interim Results

3rd Sep 2008 07:00



3 September 2008

RAVEN MOUNT PLC

("Raven Mount" or the "Company")

INTERIM STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2008

HIGHLIGHTS
Group profit before tax and excluding adjustment for pension fund was £0.8 million (2007: loss £3.9 million) on turnover of £14.0 million (2007: £32.3 million). Group loss before tax was £14.5 million. Property Fund Management business earns fees as at 30 June 2008 on US$1,445 million (31 December 2007: US$1,342 million) committed funds by Raven Russia Limited and generated a management fee during H1 2008 of £7.4 million (2007: £3.0 million).
Full insurance buyout of pension scheme; additional payment of £7.25 million, subject to adjustment and interest, into the scheme.
Post 30 June 2008, announced intended sale of Property Fund Management business to Raven Russia Limited for consideration of £15.0 million plus 80 million Raven Russia shares, payable on completion, subject to shareholders’ approval.
Independent Living business commenced development on 4 sites comprising 408 units, construction completions of first phases in 2008. Continued negotiations seeking external financing.
£48.0 million net debt as at 30 June 2008. As at 31 August 2008, Group net debt was £50.9 million. New secured £20.0 million bank facility.
Given the proposed distribution to shareholders as part of the sale of the Property Fund Management business, the Company has decided not to pay an Interim Dividend.
Including the full consideration from the sale of the Property Fund Management business, proforma shareholder funds of 132.7p per Ordinary share which includes the proposed distribution to shareholders of 47.8p per Ordinary share. (valuing the Raven Russia shares at 30 June 2008 price of 83.75 pence).
Commenting on the results, Anton Bilton, Executive Chairman, said:
“The sale of our Russian Property Management business crystallises the value created in this business over a three year period whilst also aligning our interests ongoing with Raven Russia shareholders.”
Bim Sandhu, Chief Executive, said:
“Despite, or rather because of, all the pessimism, great market opportunities will arise for those with the foresight to identify them and the cash to finance them. In the meantime, we will continue to focus on cash generation, control of costs and realising value for shareholders.”
Enquiries to:
Raven Mount plc	020 7235 0422
Anton Bilton Bim Sandhu Mark Kirkland	Executive Chairman Chief Executive Finance Director
Shore Capital & Corporate Limited	020 7408 4090
Guy Peters

CHAIRMAN'S STATEMENT

The last six months have been highly eventful in every respect.

The deepening banking crisis has become the tail that wags our country's economic dog and this is extremely worrying as without credit our system is showing strong signs of a meltdown. Neither I, nor my colleagues, have ever before witnessed a market as challenging to raise debt either at the domestic or corporate level. The banks simply don't have the money!

So, what have we been doing about this in our attempts to manage your company and help it prosper in such a difficult climate.

Firstly, we have passed on our pension liability to Pension Insurance Corporation at a cost, subject to adjustment and interest, of £7.25 million. This rids us of what we perceive to be a long standing liability whilst simultaneously respectfully strengthening the guarantor for the pensioners.

Secondly, and subject to a shareholder vote, we have agreed to sell our Russian Property Management business to Raven Russia Limited for a consideration of £15 million cash and 80 million Raven Russia shares. This crystallises the value created in this business over a three year period whilst also aligning our interests ongoing with Raven Russia shareholders. 

Thirdly, we have been seeking external financing for the development of our Audley business to allow it to continue to grow and to capitalise on the current acquisition opportunities that this difficult market will throw up. These negotiations are currently ongoing.

Finally, we continue to manage our existing residential developments at Sheffield, Lewes and Brackley and also our second homes development "The Lakes" in the Cotswolds which has achieved satisfactory sales to date.

I think the next six months will show a worsening economic scenario and we will be doing all we can to steer our ship through these treacherous waters with all the hatches firmly battened down.

I would like to sincerely thank my colleagues Bim Sandhu, Glyn Hirsch and Mark Kirkland for negotiating these transactions and helping to bring them to successful outcomes in such turbulent times.

 

Anton Bilton

Executive Chairman

3 September 2008 

  CHIEF EXECUTIVE'S INTERIM REPORT 

Results 

The Company generated a small profit on ordinary activities before taxation and the adjustment for the disposal of the Swan Hill Pension Scheme of £0.8 million for the six month period ended 30 June 2008 (2007: loss of £3.9 million) on a significantly reduced turnover of £14.0 million (2007: £32.3 million). Group loss before tax was £14.5 million. 

The disposal of the pension scheme for £7.25 million plus interest and costs, and which is subject to adjustments for pension scheme data, together with the cash payment of £1.8 million to the pension scheme in the period generated a one off write-off of £15.3 million which increased the overall loss before tax to £14.5 million.

Net Assets as a result decreased from £82.0 million as at 31 December 2007 to £68.3 million. Whilst this is a significant reduction in net assets I believe that we have achieved an exceptional price for disposing of the pension scheme liabilities and its associated risks. The size of the write-off is more a reflection of the vagaries of pension scheme accounting rather than the merits of the transaction that we have undertaken. Subsequent volatility in the markets has also helped to demonstrate that, whether by luck or judgement, we got our timing right.

The Net Assets also do not reflect the value, almost all of which represents payment for goodwill not included in the balance sheet, of the Russian Property Fund Management business which is being disposed of subject to shareholder consent. Consideration for the disposal will be approximately £83.4 million (valuing Raven Russia shares at 85.5 pence being the price at the time of the announcement), prior to transaction costs and bonuses.

Audley Independent Living 

As at 30 June 2008 we had commenced development works on four sites now comprising 408 units (127 units at St Elphins, 87 at Mote Park, 98 at Ilkley and 96 at Inglewood) and were managing and marketing three additional sites, including two of our own, comprising 168 units.

Work in progress on the sites under development increased from £38.2 million as at the year end to £46.7 million as at 30 June. No sales were made as we had no construction completed properties as at the half year end. However, I am pleased to report that the first phases on Mote and St Elphins are now beginning to be construction completed and we have now completed the sale of our first units at these sites. We expect the first phase of Ilkley to be construction completed in the first quarter of next year and Inglewood in the last quarter of next year.

We have strong visitor numbers to our sites and potential purchasers remain excited by the Audley Independent Living proposition. Purchasers, however, remain nervous to commit until they see completed units and in particular completion of the central facilities from which we provide the core services. We should therefore have an increasingly marketable product as we proceed through the development process.

We currently have a further three development sites under contract, subject to achieving satisfactory planning, with a fourth pending as well as a number of potential pipeline deals. 

We remain convinced that Audley Independent Living remains an excellent medium to long term proposition albeit one adversely, but temporarily, affected by the current generally poor sentiment in the housing market. 

Property Fund Management

The Company earned £7.4 million (2007: £3.0 million) on its core base fee of 2% during the period. As at 30 June, our Company was earning its base management fee on US$1,445 million which translates into an annualised fee of US$28.9 million or £14.5 million at an exchange rate of $2:£1 (the recent strength of the dollar will increase the sterling equivalent).

The Company notified shareholders on 9 July 2008 of its intention, subject principally to shareholder approvals, to sell this business to Raven Russia for £15 million in cash and 80 million shares in Raven Russia (valued as at 85.5 pence on announcement of the transaction) of which 64 million shares will be transferred directly into the hands of Raven Mount shareholders through an unfortunately complicated but necessary restructuring process. The value, approximating £83.4 million, represents an agreed discounted net present value of the future cash flows we could expect from this business during the term of the contract. Raven Mount shareholders can continue to retain exposure to the Russian warehousing market and more generally the considerable skills of its management team through retaining the Raven Russia shares. 

Shareholders will be receiving detailed information on the internalisation proposal in the next few days, including notification of the meeting to vote on the transaction. Raven Russia shareholders had a meeting on 28 August and approved the transaction. The full rationalisation for the proposal is set out in the documents being sent to shareholders and therefore I will make no further comments here other than to encourage shareholders to read the proposals and vote (hopefully favourably) on the proposed transaction.

Residential Development

Residential turnover declined markedly as the only sales that took place during the period were on the balance of the units on the New England Quarter, Brighton station joint venture site. Under the terms of the joint venture agreement with Barratt we have now received all the consideration that is due to us on these units and have no further economic exposure to this site.

Construction work on Sheffield Phase 1 (www.kelhamriverside.com) is proceeding well and we expect the first construction completion of units in September with full completion of the site before the year end. We fully recognise that this is the toughest residential market, particularly for apartments in our lifetimes, largely because of the lack of mortgage provision, and therefore realisation of cash from this site even when fully developed will be slow. We have not commenced development on the 339 unit Sheffield Phase 2 site, on which we received vacant possession earlier this year, and we will not do so for the foreseeable future. We are currently seeking to dispose of this site but the demand for such properties is currently limited.

Development of the 51 unit residential site in the centre of Brackley (www.collegeplacebrackley.co.uk), which also has approximately 9,000 sq ft of commercial space, is also proceeding well and we expect to be construction complete before the year end. However, we do not as yet have any exchanges on this site given the current reluctance of purchasers to purchase off plan. We shall be commencing the marketing of this site this autumn. Construction completion of the 54 unit Lewes scheme (www.theprintworkslewes.co.uk) has proved more problematical due to the incompetence of the chosen contractor. However, we are now beginning to see physical completion of units coming through as well as the first sales completions.

Our second home scheme at Coln Park, Lechlade in the Cotswolds (www.thelakesbyyoo.com) continues to perform well. We currently have detailed consent on 83 second homes and are seeking changes to the planning on subsequent phases in order to enhance the overall value of the site. We are in the early stages of seeking planning permission for our second homes and hotel scheme in Grand Bahama.

Swan Hill Pension Scheme

On 28 May 2008 the Company announced that it had supported the Directors of the Trustee of the Swan Hill Pension Scheme ('the Scheme') in entering into an agreement with Pension Insurance Corporation Limited ('PIC') for a full insurance buy-out of the Scheme. In order to facilitate the buy-out the Company agreed to pay an additional £7.25 million to the Scheme, £2 million of which has been paid and a further £5.25 million plus interest is payable in January 2009. Further adjustments may be required following a data and benefit verification process which is currently being carried out. The trustees were informed by PIC on 18 August that they had not seen any thing to date which lead them to believe that there were any significant variations in the size of the liabilities to those originally valued in the insurance policy buy-out proposal. In addition, the Company will have to pay costs and fees on the transaction and further costs in the course of winding up the Scheme; a process which is currently expected to be completed next summer. Following the verification process, completion of the buyout and the winding up of the Scheme, the Company will have no further exposure to the pension liabilities of the Scheme.

Shareholders will be aware that since the takeover of Swan Hill in December 2003 the Company has made concerted efforts to address the various funding, regulatory, legal and accounting issues involved for a company which operates a defined benefit pension scheme. These concerted efforts, including the closure of the Scheme to future accrual for existing employees on 31 December 2005, have been more than offset by the increasingly restrictive regulatory environment within which the Scheme operates, the changes in accounting standards leading to increased volatility in reported earnings, the difficulty in identifying and reporting on a fair value measure for the reported liabilities of the Scheme to shareholders, the increasing restrictions placed on companies which operate such schemes restructuring their businesses (relevant to the structure of the sale of our property fund management business) and, in particular, increasing concerns about longevity trends and their impact on the Scheme liabilities over the long term. I believe matters will only get worse in respect of most of those issues. The Company had been monitoring developments in the buy-out market for some time and believed that the market was sufficiently developed and the economic conditions relevant to pension fund buy-outs sufficiently beneficial for it to have obtained a very competitive price for the transaction.

The Company has made contributions of £10.6 million into the Scheme since the takeover in December 2003 of which £1.8 million was paid in the first quarter of this year. Including the £7.25 million noted above, the total contributions made or to be made since December 2003 will exceed £17.85 million, plus transaction and wind-up costs. Under International Accounting Standard 19, the Scheme had a 'surplus' of £5 million on a pre-tax basis as at 31 December 2007.

Banking

The banks generally do not seem to want to lend or commit any more money than they feel is essential for a business and they very much want to be in control of any new business investments. Consequently, our general group bank facilities (excluding those for the Audley business and the Coln joint venture) have been reduced to a secured £20 million facility available for one year until 31 August 2009. In addition, following the expected receipt of the £15 million due on the completion of the Raven Russia transaction, £10 million of the facility will only be available with the bank's consent. What more can I say? Oliver Twist comes to mind!

Dividends

As 64 million Raven Russia shares will be distributed directly to shareholders (subject to shareholder approval) as part of the reorganisation leading to the sale of the property fund management business, the Company does not propose paying an interim dividend.

Going forward, the directors believe that the Company should adopt a policy which is appropriate to the Group's ongoing business. Consequently, the declaration and payment by the Company of any dividends in the future will depend on the results of the Group's operations, its financial condition, in particular its cash requirements, its future prospects, profits available for distribution and other factors which may be relevant at the time. In short, we will decide next year!

Prospects

The general consensus seems to be that prospects for the British economy remain grim. General market conditions continue to deteriorate and will continue to do so until the banking sector recovers both its finances and perhaps more importantly its nerves. Unfortunately, the financial sector currently and incorrectly seems to view property in the way they do the Zimbabwean dollar - worthless and depreciating. The weakness of the banking sector therefore remains our primary concern and at times one feels their pessimism seems to extend to the point of suspecting the optimism of pessimists!

As with all sensible companies in this market we will continue to focus on cash generation, control of costs and seeking to realise value for shareholders. We will seek to dispose of our mainstream residential assets at sensible prices and as quickly as we can. With respect to Audley and as previously announced, given the size of the opportunity in this sector and the more limited availability of bank debt, we are seeking to obtain additional funding for this business. This may involve mezzanine funding, joint venture funding or even an outright sale as there may be others better funded to take full advantage of the opportunities available in this sector. If such funding is obtained, and depending on its scale, this may release cash for the increasing number of business opportunities that arise in markets such as these and/or to enable cash to be returned to shareholders in one form or another. Should we fail to obtain such funding we will continue to grow the Audley business albeit at a slower pace within confines of our own cash flows as we are strong believers in the medium to long term fundamentals of this business.

Despite, or rather because of, all the pessimism, great market opportunities will arise for those with the foresight to identify them and the cash to finance them.

Bim Sandhu

Chief Executive

3 September 2008

  

Consolidated Income Statement
							Unaudited		Unaudited		Audited
						Six months to		Six months to		Year to
						30 June			30 June	31 December
				Notes			2008		2007		2007
							£'000		£'000		£'000
Revenue							13,977		32,307		68,569
Cost of sales							(6,347)		(29,188)		(59,901)
Gross profit							7,630		3,119		8,668
Administrative expenses	- cost of sale of pension scheme						(15,340)		-		-
	- other						(7,405)		(7,508)		(16,123)
Total administrative expenses				2			(22,745)		(7,508)		(16,123)
Other income  / (profit) results of joint ventures							-		-		1,033
Group operating loss							(15,115)		(4,389)		(6,422)
Finance income				3			3,179		877		6,375
Finance cost				3			(3,319)		(204)		(4,445)
Share of profit/(loss) of joint ventures Finance income (net)							762		(204)		(324)
Loss before tax							(14,493)		(3,920)		(4,816)
Tax							3,716		211		2,652
Loss for the period							(10,777)		(3,709)		(2,164)
Attributable to
Equity holders of the parent							(10,777)		(3,709)		(2,164)
Minority interest							-		-		-
							(10,777)		(3,709)		(2,164)
Basic and diluted loss per Ordinary share				5			(9.6)	p	(3.3)	p	(2.0)	p
Consolidated statement of recognised income and expenses
							Unaudited		Unaudited		Audited
						Six months to		Six months to			Year to
						30 June			30 June	31 December
							2008		2007		2007
							£'000		£'000		£'000
Losses on revaluation of available for sale investments							(1,917)		(1,701)		(3,769)
Pension scheme actuarial gains							-		-		3,199
Deferred tax on items recognised directly in equity							256		510		178
Loss for the period							(10,777)		(3,709)		(2,164)
Total recognised income and expense in the period							(12,438)		(4,900)		(2,556)
Attributable to
Equity holders of the parent							(12,438)		(4,900)		(2,556)
Minority interest							-		-		-
							(12,438)		(4,900)		(2,566)

  

Consolidated balance sheet				Unaudited		Unaudited		Audited
				30 June		30 June	31 December
		Notes		2008		2007		2007
				£'000		£'000		£'000
Non-current assets
Property				4,229		-		4,229
Plant and equipment				1,041		789		966
Investment in jointly controlled entities				460		15		42
Deferred tax assets				5,231		349		2,827
Retirement benefit surplus				-		663		5,027
Total non-current assets				10,961		1,816		13,091
Current assets
Inventories				102,423		82,982		83,586
Trade and other receivables				12,506		16,361		21,177
Available for sale investments				14,915		18,135		16,335
Cash and cash equivalents				5,112		2,071		4,392
Total current assets				134,956		119,549		125,490
Total assets				145,917		121,365		138,581
Current liabilities
Trade and other payables				(17,695)		(16,610)		(11,951)
Bank loans and overdrafts				(18,784)		(5,886)		(18,330)
Short term provisions				(1,512)		(1,835)		(1,593)
Total current liabilities				(37,991)		(24,331)		(31,874)
Non-current liabilities
Bank loans				(34,372)		(11,431)		(17,968)
Deferred tax liabilities				(5,231)		(6,559)		(6,767)
Total non-current liabilities				(39,603)		(17,990)		(24,735)
Total liabilities				(77,594)		(42,321)		(56,609)
Net assets				68,323		79,044		81,972
Equity
Called up share capital				118		117		118
Share premium account				2,418		2,418		2,418
Other reserves				98,313		99,783		99,974
Retained earnings				(32,526)		(23,274)		(20,538)
Equity attributable to equity holders of the parent				68,323		79,044		81,972
Minority interest				-		-		-
Total equity				68,323		79,044		81,972
				Unaudited		Unaudited		Audited
			Six months to		Six months to			Year to
				30 June		30 June	31 December
				2008		2007		2007
				£'000		£'000		£'000
Cashflow statement
Loss before tax				(14,493)		(3,920)		(4,816)
Finance income				(3,179)		(877)		(6,375)
Finance cost				3,319		204		4,445
Share of (profit)/loss of joint ventures				(762)		204		324
Operating loss				(15,115)		(4,389)		(6,422)
Adjustments for:
Depreciation charge				178		62		260
Share based payment charge				354		317		671
Pension scheme settlement				11,440		-		-
Operating cash flows before movements in working capital				(3,143)		(4,010)		(5,491)
Decrease in provisions				(81)		(59)		(301)
Increase in inventories				(18,837)		(17,877)		(18,481)
Decrease/(increase) in receivables				579		(961)		(4,841)
Increase in payables				775		5,859		2,967
Pension contributions				-		(1,770)		(1,799)
				(17,564)		(14,808)		(22,455)
Net cash flows from operating activities				(20,707)		(18,818)		(27,946)
Operating activities
Income taxes paid				(28)		-		-
Investing activities
Interest received				386		639		450
Dividends received				193		238		437
Purchase of current asset investments				(497)		(238)		(297)
Amounts invested in jointly controlled entities				-		(4,035)		(5,166)
Amounts received from jointly controlled entities				8,092		-		-
Proceeds on disposal of plant and equipment				-		-		74
Purchase of property				-		-		(4,265)
Purchase of plant and equipment				(253)		(488)		(901)
Net cash flows from investing activities				7,921		(3,884)		(9,668)
Financing activities
Interest paid				(1,759)		(204)		(1,067)
Dividends paid				(1,565)		(1,106)		(1,991)
New bank loans raised				16,404		11,431		17,968
Repayment of bank loans				-		(5,127)		(7,287)
Net cash used in financing activities				13,080		4,994		7,623
Net increase/(decrease) in cash and cash equivalents				266		(17,708)		(29,991)
Cash and cash equivalents at beginning of period				(13,938)		16,053		16,053
Cash and cash equivalents at end of period				(13,672)		(1,655)		(13,938)

  NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

The comparatives figures for the year ended 31 December 2007 are not the group's full statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The financial information in this document does not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2008 has been prepared using accounting policies expected to apply in the full financial statements for the year ended 31 December 2008, which are consistent with IFRS and endorsed for use in the European Union.

 

2. Pension Scheme

On 28 May 2008 the Trustees of the Swan Hill Pension Fund ("Scheme"), in conjunction with the Group, sold the Scheme to the Pension Insurance Corporation at a cost to the Group of £7.25 million. The effect of this transaction is a charge to the profit and loss account of £15.3 million comprising the £7.25 million additional contribution, £5.0 million balance sheet surplus of pension assets over pension liabilities, £0.5 million net interest received on the assets and liabilities of the Scheme (from 1 January 2008 to the date of sale of the Scheme), 2008 contributions to the Scheme of £1.8 million and associated costs of £0.8 million.

3. Finance income and expense

						Six months to				Six months to			Year to
								30 June			30 June	31 December
									2008		2007		2007
									£'000		£'000		£'000
Group
Finance income
Bank interest receivable									385		639		1,049
Return on amount charged to pension scheme									2,103		-		4,592
Dividend received on Raven Russia Limited shares									498		238		541
Dividend received on Oriel Securities Limited shares									193		-		193
									3,179		877		6,375
Finance expense
Bank interest payable									(1,759)		(204)		(1,085)
Interest on defined benefit pension plan obligation									(1,560)		-		(3,360)
									(3,319)		(204)		(4,445)

4. Dividends

A Final Dividend for the year to 31 December 2007 of 1.4p per Ordinary share was paid to shareholders on 16 May 2008. The Directors do not propose to pay an Interim Dividend.

5. Loss and shareholders' funds per Ordinary share

The basic earnings/(loss) per Ordinary share is calculated in accordance with International Accounting Standard 33 on the loss for the period of £10,777,000 (loss £2,164,000 for the full year to 31 December 2007 and loss £3,709,000 for the 6 months to 30 June 2007) and 112.0 million (110.1 million for the full year to 31 December 2007 and 109.3 million for the 6 months to 30 June 2007) being the weighted average number of Ordinary shares in issue excluding those owned by the Employee Share Trust. Since none of the Company's potential Ordinary shares are dilutive, there is no difference between the basic and diluted loss per share.

Shareholders' funds per Ordinary share are 61.0p (73.2p at 31 December 2007 and 71.3p at 30 June 2007). The calculation is based on the shareholders' funds at the period end of £68.3 million (£82.0 million at 31 December 2007 and £79.0 million at 30 June 2007) divided by the number of shares in issue at the period end amounting to 112.0 million shares (112.0 million at 31 December 2007 and 110.8 million at 30 June 2007).

 

 

 

 

 

 

 

ENDIR LTMFTMMJMBAP

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